Farnham and Doherty (Child support)
[2019] AATA 5502
•20 November 2019
Farnham and Doherty (Child support) [2019] AATA 5502 (20 November 2019)
DIVISION:Social Services & Child Support Division
REVIEW NUMBER: 2019/MC016193
APPLICANT: Mr Farnham
OTHER PARTIES: Child Support Registrar
Ms Doherty
TRIBUNAL:Member P Noonan
DECISION DATE: 20 November 2019
DECISION:
The tribunal sets aside the decision under review and, in substitution, decides that Mr Farnham’s adjusted taxable income is varied to $190,824 per annum for the period 30 January 2018 to 30 June 2018 and to $112,356 for the period 1 July 2018 to 31 December 2021.
CATCHWORDSCHILD SUPPORT – departure determination – income, property and financial resources of both parents – benefits derived from business – child’s special needs – child care costs – is departure just and equitable – decision under review set aside and substituted
Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.
REASONS FOR DECISION
BACKGROUND
Mr Farnham and Ms Doherty are the parents of three children who are currently relevant to the child support assessment.
The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of the child support payable. It uses a formula, which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The Act also provides for a departure from the administrative assessment in certain circumstances.
A child support case was first registered with the Department of Human Services (the Department) on 22 November 2016 and child support was registered for collection by the Department from 16 May 2018. The Department maintains a case completion date for this matter of 9 July 2031.
On 30 January 2018 Ms Doherty applied for a departure from the assessment of child support payable at that time. Care of the children is registered as being 263 nights per year to Ms Doherty and 102 nights per year to Mr Farnham. At the time of Ms Doherty’s departure application the applicable assessment of child support payable was:
·For the period 1 September 2017 to 30 November 2018, the annual rate of child support payable is $4,170 based on Mr Farnham’s 2016-17 adjusted taxable income of $6,924 and Ms Doherty’s 2016-17 adjusted taxable income of $168,941.
On 7 May 2018 a Department officer, acting as a delegate of the Child Support Registrar, found that a ground for departure was established and decided to depart from the assessment in the following terms:
·For the period 1 January 2018 to 31 December 2018, the annual rate of child support payable by Mr Farnham is increased by $7,583.
Mr Farnham objected to this decision and on 23 October 2018 a Department objections officer allowed his objection. The officer decided to depart in the following terms:
·For the period 1 January 2018 to 30 June 2019, the child support payable by Mr Farnham will increase by $2,886, accounting for Mr Farnham’s contribution to [Child 1]’s psychologist costs.
·For the period 1 January 2018 to 31 December 2018, the annual rate of child support will increase by $4,412, accounting for Mr Farnham’s contribution to [Child 2]’s child care costs.
·For the period 1 January 2018 to 31 December 2019, Mr Farnham’s adjusted taxable income is set at $140,000.
On 4 December 2018 Mr Farnham applied to the Administrative Appeals Tribunal (the tribunal) for an independent review.
After a successful appeal for an extension of time to appeal the matter was obtained by Mr Farnham, a hearing for the matter was held on 23 October 2019. The Child Support Registrar did not attend the hearing. Mr Farnham attended the hearing in person and gave evidence on affirmation. Ms Doherty attended the hearing by conference telephone and gave evidence on affirmation. The tribunal deferred making its decision in this matter to allow for the further exchange of documents in this. Following consideration of further material and responses received the tribunal made its decision.
Pursuant to paragraph 98C(1)(b) of the Act, a decision to depart from the administrative assessment may be made if the following requirements are met:
(i)that one, or more than one, of the grounds for departure referred to in [subsection 117(2)] exists; and
(ii)that it would be:
(A) just and equitable as regards the child, the liable parent, and the carer entitled to child support; and
(B) otherwise proper; …
CONSIDERATION
Mr Farnham’s income and access to financial resources
Subparagraphs 117(2)(c)(ia) and (ib) of the Act, commonly referred to as Reason 8, provide as grounds for departure:
(c) that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child:
...
(ia) because of the income, property and financial resources of either parent….
(ib) because of the earning capacity of either parent.
Mr Farnham’s 2017–18 taxation return disclosed taxable income of $1,665.
He runs two businesses now trading as [Company 1] (formerly [Company 2]), and [Company 3] (formerly [Company 4]).
[Company 1] declared 2017-18 gross profit of $780,717.50 and expenses of $788,168.40 for a net loss of $5,450.90.
[Company 3] declared 2017-18 gross profit of $115,866.24 and expenses of $233,543.82 for a net loss of $117,677.58.
The tribunal considers that Mr Farnham’s businesses are complex. They provide [specified services]. Business accounts indicate a significant drop in overall revenue when compared to the 2015–16 results when the last overall business profits were declared. Mr Farnham attributed this to industry changes and failed business execution. The tribunal noted that business expense ratios had not dropped in line with the ratio of 70% expenses to income maintained in 2016–17 and in fact had increased to over 100%.
It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott v Scott (1994) FLC 92-457; Carey v Carey (1994) FLC 92-489).
The tribunal accepts Mr Farnham’s submissions that structural changes within the [industry] and the loss of a major contract have adversely affected his business revenue. However in circumstances where business expenses ratios have altered significantly the tribunal considers it is appropriate to consider the personal expenditure of the business proprietor in such times to assess their ability to support their children. In this instance, the tribunal will look beyond the somewhat complex expense claims made by the businesses, to assess the capacity of Mr Farnham to support the children with reference to his personal expenditure.
The tribunal first considered Mr Farnham’s credit card and personal banking statements for the period 1 January 2018 to 31 March 2018. In this period his credit card statements reflect credits totalling $21,835.86. His personal bank reflects expenditure for the same period was $10,350.09. The tribunal notes that the majority of this expenditure appears discretionary in nature and totals $32,186.95. These amounts annualise to $128,743. Grossed up for PAYG tax this amounts to $190,824.[1]
[1] >
To understand if Mr Farnham has since cut back on his level of discretionary personal expenditure due to his claimed poor business performance, the tribunal also looked at his expenditure in the corresponding subsequent period 1 January 2019 to 31 March 2019. In this period his credit card statements reflect credits totalling $14,937.73. His personal bank reflects expenditure for the same period was $5,566.55. These amounts annualise to $82,017.12. Grossed up for PAYG tax this amounts to $112,356.
Rather than undertake an exhaustive analysis of Mr Farnham’s significant and complex business expense claims, the Tribunal considers, in this case, that it is appropriate to be guided by the level of his own personal expenditure to assess his capacity to support the children. Accordingly, at the time of Ms Doherty’s departure application, Mr Farnham’s overall access to income and financial resources for the purposes of considering his ability to contribute to the maintenance of the children is reasonably reflected by an annual income of $190,824.
Ms Doherty’s income and access to financial resources
While Ms Doherty also runs a business her associated expense claims are minimal and reasonable in the tribunal’s view. Her 2017-18 adjusted taxable income, maintained by the Department, is $168,331. She submitted her 2018-19 taxation return which reflected a declared taxable income of $176,244. The tribunal found no basis for varying her adjusted taxable income in the evidence before it.
Conclusion – the parents’ income and financial resources
Under the applicable assessment, the annual rate of child support payable by Mr Farnham was $4,170 per annum. The Tribunal has determined that his income and financial resources is reflective of an income of $190,824 per annum at the time of the departure application. The annual amount of child support payable by Mr Farnham using this figure is approximately $13,086 per annum. Such a difference in the child support payable constitutes special circumstances as the application of the applicable assessment would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Farnham in support of the children. As a result a ground for departure in subparagraph 117(2)(c)(ia) of the Act does exist.
Other grounds
Ms Doherty also raised departure grounds relating to the special needs costs of the children, child care costs and her necessary expenses for self-support.
24.In Marsh & Eccles [2008] FMCAfam 1417, Riethmuller FM stated, in regard to determining multiple grounds for departure from the administrative assessment, as follows (at paragraph 13):
Once a ‘special circumstance’ is established, it is then necessary to determine what would be a just and equitable and otherwise proper child support assessment … once a special circumstance has been established for each period, as only one special circumstance in the period is sufficient to satisfy the first step of the departure process.
The Tribunal will therefore consider these grounds in the context of whether it is just and equitable and otherwise proper to depart from the administrative assessment.
Would departure from the assessment be just and equitable?
Mr Farnham
Mr Farnham submitted a Statement of Financial Circumstances for the purposes of this tribunal hearing. He disclosed minimal assets outside of superannuation. He disclosed credit card debt totalling $19,000. He disclosed personal expenditure of $378 per week and weekly household expenditure of $480 per week. As already ascertained earlier in these reasons, Mr Farnham’s level of expenditure reflected in his accounts is greater than these amounts and the tribunal prefers to rely upon that analysis when ascertaining a just and equitable outcome in this matter. The Tribunal concludes he has sufficient income to meet his necessary expenses for self-support and that he has the financial capacity to make a contribution towards the maintenance of the children.
Ms Doherty
Ms Doherty submitted a Statement of Financial Circumstances dated 15 April 2019. She disclosed ownership of a property worth $1,400,000 with a mortgage of $540,869. She disclosed around $82,676 in cash, investments worth $64,522, a vehicle worth $3,500 and superannuation of $231,012. She disclosed personal debt of around $33,000 and tax owing of $45,000. Her weekly personal expenditure is around $1,633 per week and her weekly household expenditure is around $2,212 per week. The Tribunal considers that an increase in child support payable to her will assist her in maintaining the children.
The children
In determining the proper needs of the children it is necessary to have regard to the manner in which the children are being, and in which the parents expected the children to be, cared for, educated or trained, and any special needs of the children (subsection 117(6) of the Act). In Eades & Cadell (SSAT Appeal) [2009] FMCAfam 275, at paragraph 22, Slack FM stated as follows:
In considering the proper needs of the child [s 117(4)(b)], the SSAT:
a.would ordinarily consider the evidence of the parties about the needs of the children to assess the reasonableness and quantum of those needs;
b.may have regard to publish guidelines as to the needs of the children (see Hallinan & Witynski at 94.323).
c.may also have regard to the costs of children used in the assessment of child support under the existing formula arrangements (although it is not sufficient or appropriate to rely upon the formula to perform that task, Lindenmayer J in Dwyer & McGuire (1993) FLC92-420 (and see also Gyselman (supra) at 79.078).
In respect of issues raised by Ms Doherty in respect to special needs costs the tribunal notes that the objections officer varied the amount payable by Mr Farnham by $2,886 for 18 months. In respect of child care costs the objections officer varied the amount by $4,412 for 12 months. After considering the totality of the evidence before it including Ms Doherty’s significantly higher levels of assets and income and Mr Farnham’s accepted challenging business conditions, the tribunal does not consider further variation to the annual rate of child support payable by Mr Farnham will result in a just and equitable outcome. Overall the tribunal considers that distributing the costs of raising the children using the relevant child support formula, which is based on social science research giving the average costs of children in various family income brackets, and incorporating the income as derived earlier in these reasons, results in a just and equitable outcome with an adjustment in respect to care costs.
It is open to the tribunal to vary the rate of child support payable or vary some of the variables that are used in the administrative assessment formula.
The principal object of the Act is to ensure that children receive a proper level of financial support from their parents. Further, I note the statements contained in sections 3 and 4 of the Act to the following effect:
·Parents of a child have a primary duty to maintain the child;
·The duty has a priority over all other commitments of the parent other than commitments necessary for self-support;
·The level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards; and
·The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.
The tribunal has considered the evidence given by each party in respect to the questions posed to them about any potential hardship that may be caused to them by a departure determination. Mr Farnham submitted that he could not survive on the level of child support assessed by the objections officer and his business is struggling and has significant carry forwarded losses at the moment. He submitted in contrast Ms Doherty lives well. Ms Doherty submitted Mr Farnham can afford to pay more child support as reflected by his lifestyle expenditure.
Overall the tribunal considers it is just and equitable to depart from the administrative assessment of child support payable. This departure will commence from 30 January 2018 when Ms Doherty made her application for departure. The departure will cease on 31 December 2021. Such a date range also allows for both parents to plan their affairs with certainty as the tribunal considers Mr Farnham’s taxable income will continue to not reflect his income and overall access to financial resources, as assessed for child support purposes, at any stage in that time period.
With regard to all of the reasoning, as set out above, Mr Farnham’s adjusted taxable income is varied to $190,824 per annum for the period 30 January 2018 to 30 June 2018 and to $112,356 for the period 1 July 2018 to 31 December 2021.
With regard to the care records outlined earlier in these reasons, the amount of child support payable by Mr Farnham in the period 30 January 2018 to 30 June 2018 is around $13,086 per annum or $251 per week with a decrease to around $6,147 per annum or $118 per week for the period 1 July 2018 to 31 December 2021. The tribunal does not consider Mr Farnham will be placed in undue hardship by this departure decision. He is afforded some considerable financial relief when compared to the decision under review and he clearly has discretionary financial capacity such that he can make a reasonable contribution to the maintenance of the children.
The tribunal also did not consider Ms Doherty will be placed in undue financial hardship by this decision. She will be paid child support that is commensurate with the tribunal’s analysis of the parents’ overall access to financial resources. While some overpayment to her may be created as a result of this decision this is an unavoidable consequence of the review process.[2] However the tribunal also notes that Mr Farnham is also considerably in arrears.
[2] Child Support Registrar & Pearce [2018] FamCAFC 10
The Tribunal considered this departure determination is a just and equitable outcome in regard to the respective situations of each parent.
Otherwise proper
An increase in child support payable may reduce the cost to the community. There is also nothing improper in adjustments to the amount of child support payable to reflect the parents’ actual respective capacities to provide support to the child.
DECISION
The tribunal sets aside the decision under review and, in substitution, decides that Mr Farnham’s adjusted taxable income is varied to $190,824 per annum for the period 30 January 2018 to 30 June 2018 and to $112,356 for the period 1 July 2018 to 31 December 2021.
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